The Road to Regulation

The Story of California’s Original Regulation of Public Utilities

By

Shawn Nelsen

Recently Californians have had to deal with the threat of rolling blackouts, complete energy loss, and raising energy costs.  Hospitals, and other important energy consumers, faced with the threat of power loss, have had to make decisions that affect the safety of countless individuals. The energy crisis affected large corporations, individual consumer, and energy providers alike.  On April 6, 2001 Pacific Gas & Electric (PG&E), one of California’s largest energy provider, declared bankruptcy partially because of the cost of power procurement.  The media blamed California’s energy crisis on utility deregulation.  California legislators, before the crisis occurred, worked to remove government regulation in order to provide a more competition friendly environment.  The lawmakers hoped that by removing the statewide regulations limiting competition, competing utility providers would enter monopolistic markets and force the price of energy to drop.   Unfortunately, for many Californians the legislators were wrong.  Amidst the growing problems associated with the newly deregulated market, many advocates began to call for a return to the “old-style regulation” Californians enjoyed before the crisis.[1]

Had the lawmakers, and other backers of utility deregulation, studied California’s past concerning utilities they may not have been so quick to jump on the deregulation bandwagon.  Past Californian law makers dealt with their own problems that caused them to regulate the market in the first place.  Californians often had to deal with expensive fights involving utilities to determine whether companies could supply certain municipalities and whether the municipal governments had the right to regulate the companies that did so. These arguments frequently turned into expensive court cases that strained the taxpayers and utility providers alike.[2]  Furthermore, utility providers did not always provide the level of service that cities expected. Worsening the problem was the fact that the franchises granted to the providers sometimes left municipalities with little to no way of forcing the utility companies to provide satisfactory service.  Municipalities often granted franchises for extended amounts of time, regularly in perpetuity.  These long-term grants handed away, to private companies, rights that cities could have kept in order to secure the future needs of their citizens.[3] Additionally, according to Leo Sharfman, who worked with the University of Michigan, the “public service franchise was looked upon as a private contract between the state and the grantee corporation.”  This relationship eliminated the potential relationship of the “sovereign” granting power to the individual for the benefit of the public.[4]  In Sharfman’s opinion, the sovereign powers handed away entirely too much power. 

In order to help alleviate the burden of local municipalities having to grant their own utility franchises, and stipulate the terms of the franchises, the framers of the 1879 California constitution set up new rules.  The constitution opened the door for what the framers hoped would be a modern, competition friendly environment.  As time passed, however, the framers method of ensuring a prosperous utility market proved to be a failure.  Municipalities still had to regulate their own individual markets to the detriment of both the California citizens and the utility providers.  As the growing frustrations of an unregulated state became apparent, lawmakers finally decided to try to fix the problems.  They first turned their attention to the bustling railroad industry by creating the Railroad Commission.  After working out the many glitches associated with the early commission, lawmakers expanded the power of the Railroad Commission to include regulatory power over municipal utilities as well.  The lawmakers, in taking this action, worked to correct the error that the 1879 framers created and finally take utilities away from localized municipal control.

Before the regulation of utilities, Californians found the utility and municipal franchise market laden with tribulations. These problems varied from mere inconveniences to detrimental troubles. Los Angeles, for example, experienced extensive problems with the acquisition and distribution of water.  In 1868, voters authorized the sale of Los Angeles water distribution rights to a group of private capitalists. The capitalists, who named their company the Los Angeles City Water Company, proved to be unsatisfactory at their obligation of supplying water to the city in a reliable manner and at a reasonable rate.  Many citizens expressed their anger that the company generated profits from the water that Los Angeles already owned.  Furthermore, the companies 200 miles of pipes proved inadequate to serve the city and provide water for fire protection.[5]  Eventually authorities argued that water could be supplied at one tenth of what the Los Angeles City Water Company charged.  In 1902, Los Angeles had to buy back the right to distribute water that the city already owned.[6]

Another example of problems found in Los Angeles can be seen the battle over street car rights on Compton Avenue.  On June 9, 1902, a group of forty city workers destroyed the work of 460 men employed by the Pacific Electric Railway Company.  The electric railway company ordered its men to lay tracks in a street of which the city claimed the Pacific Electric Railway Company had no rights.  The company had previously paid the City Treasury a large sum of money for the right to a franchise on Compton Avenue.[7]  The Mayor, however, vetoed the franchise and offered to return the funds.[8]  The Pacific Electric Railway Company instead opted to push the issue to the Federal Court.  While the City and the railway company fought over the franchise rights, Pacific Electric Railway came in and started work.  The electric railway company argued that it had to start work immediately because the terms of the franchise stipulated that the company had to start construction within four months from the time that the city granted the franchise.  If the company waited any longer to start construction, whether or not the city granted permission, the franchise would have been lost.[9]  This battle over the right to franchise in Los Angeles, instead of having any meaningful significant outcome, caused the destruction of Pacific Electric Railway’s property, a headache for the city officials, and a large court bill for the taxpayers.

San Francisco also had its own problems with public utilities and franchises.  A fire that started at a substation of the San Francisco Gas & Electric Company on February 1, 1906, before the great earthquake, caused extensive problems with several different utilities.  The gas company had been installing new dynamos at a power plant when an explosion took place that gutted the plant and knocked out power to a good-sized section of the city.  The power outage disabled Western Union and telephone lines.  Moreover, the explosion caused a gas main in the center of a near by street to ignite causing further danger and confusion.[10]  This one explosion single handedly disable gas, electric, wire, and telephone utilities, as well as put many lives at risked.  In a more strictly regulated environment, such accidents might have been avoided.

Further San Franciscan problems with utilities are represented in the case of Spring Valley Water Works v. San Francisco.  San Francisco, for many years, claimed the right to freely use Spring Valley’s water for municipal public purposes and for the fighting of fires.  Spring Valley Water Works, however, claimed that San Francisco only had the right to use its water in case of fire and that the city should have to pay the company for its municipal use of Spring Valley’s water.  San Francisco and Spring Valley took this argument through many different courts and portrayed their sides in varying manners.[11]  One of the Arguments that San Francisco tried took the stance that Spring Valley Water Works charged excessive rates for its water and that these rates violated the terms of the 1879 California constitution. Judge Gilbert, who heard the case in 1904, admitted that Spring Valley may have been charging too high of rates, but he did not want to be the one to decide that fact.  Gilbert further commented “it is apparent that the complainant would suffer irreparable loss and be subjected to great inconvenience by reason of its inability to collect just rates from a considerable portion of the consumers of the water.”[12]  In this opinion, the judge obviously felt that the company should have the right to bill users for the water that the company supplied.  The case just further highlights the fact that municipal utilities and franchised caused the people of California extensive troubles.

Even though authorities knew that these municipal franchises were laden with problems, the California Constitution left them with little choice but to grant franchises to many different companies.[13] Section 19 of article XI stated that “in any city where there are no public works owned and controlled by the municipality for supplying the same with water or artificial light…” almost any individual or corporation may have the right to do so.  The constitution declared that as long as the company abided by the laws of California then the company had the “privilege of using the public streets and thoroughfares” for the purpose of installing its gas, or water mains and utility poles in order to supply utilities to the people.[14]  The California Supreme court “uniformly” held this section as a “direct grant of power” to service companies for the purpose of allowing them to use public city streets. The courts further claimed that this grant of power constituted a franchise.[15]

According to Judge Lorigan, the framers of the 1879 California constitution had good reasons to included Section 19 of article XI of the Constitution.  Lorigan wrote that it “was to prevent the abuses which the framers of the constitution believed were theretofore indulged in by municipal officers…” Lorigan argued that the municipal officers imposed “onerous burdens and conditions” upon companies that wanted to enter the utility market.  These burdensome conditions inhibited competition with the then current utility company and “hence created a monopoly in favor of the existing corporations.”[16]  In this view, the municipal officers, if given the opportunity of direct regulation over the utility providers attempting to enter their municipalities, would succumb to corruption.  The framers feared that companies would find it all too easy to influence the municipal officers so that the officers would only protect the existing companies in detriment to any potential competitor.         

Whether or not the constitution’s framers had good intentions, the constitution essentially gave away municipal franchises that many considered to be valuable commodities.  According to the Columbia Law Review a “special franchise may be defined as a governmental grant to an individual, of a special privilege, of a public charter, not belonging to the people generally as a common right.”[17] Since not anybody had the right to do what the franchise permitted, the franchise its self became a valuable piece of property.  Some lawmakers even believed that the franchise should be a taxable commodity.[18]  In the case of Stockton Gas & Electric Company v. San Joaquin County, held before the California Supreme Court in 1905, the court determined that a municipality could tax the assets of a utility company even if the company was not based in the municipality its self.  The court argues that as long as the company did business in the municipality then the right to tax existed.[19]

In 1903, the Los Angeles Times pointed out the great value of the Traction Street railroad system in Los Angeles. The system sold for $1,750,000.00, were the purchaser also assumed all bonded indebtedness.  Since the bonded indebtedness paid for the entire construction and equipping of the railroad, the purchaser paid the $1,750,000.00 for a franchise that the city gave out free of charge.  The times also pointed out that the Market Street railroad system of San Francisco sold for $17,000,000.00, were its purchaser also assumed all bonded indebtedness that had been used for the construction of the railway.  So essentially the franchise that San Francisco gave away free was actually worth $17,000,000.00.[20]

Under such conditions, to the experts of the past, the issue of regulation became not whether utilities should be regulated, but how they should be regulated.  The issue of regulation not only presented its self in California, but all over the United States.  During the late 19^th century, many cities felt that having a competitive utility market best served their citizens.  Cities like Denver and New York handed out franchises to many different organizations.  New York, in 1887, simultaneously granted six different electric companies franchises.[21]  Eventually, though, experts and specialists began to take the opinion that utilities are “natural monopolies.”[22]  William Norton, a contributor to the Annals of the American Academy of Political and Social Science, wrote in 1914, “public utilities are monopolies, natural monopolies, which should be protected from competition and all unnecessary risks to capital.”  Norton further argued that the recognition of this fact justified the need for utility regulation.[23]  Norton believed that if the utility companies wasted resources through the duplication of infrastructure such as utility poles or gas and water mains then the public inevitably suffered.  The companies pushed the extra cost of the wasteful construction and competition back to the consumers.[24]   Seeing as cities often freely handed out these virtual monopolies, governmental regulation became the needed solution the monopolistic problem.[25]  In this light, nearly all the experts began to agree that regulation in one form or another was necessary for an affective utility distribution system.  The prevalent question then became whether utilities should be regulated by the state, or by the municipal government.  In California, until the legislators gave the State power to regulate, the then present conditions forced municipalities to take on that role.  The experts, however, disagreed on who should have the power to regulate. One group believed that cities mishandled their power while the other believed that the legislatures abused their authority.[26]

Many experts believed in home rule, or that the cities them selves should have the right to regulate their own municipal franchises.  Delos F. Wilcox fought particularly hard for the idea of home rule.  Scholars viewed Wilcox as an expert on municipal franchises because he served for many years as chairman of the committee on franchises of the National Municipal League. Wilcox argued that “the American rule of enumeration of powers ought to be reversed, and cities be given a local grant of authority to attend to all local matters, leaving the courts to decide, whenever the question is raised as to city’s overstepping its jurisdiction.  It is in this direction that the home-rule program should be most aggressive.”[27] Wilcox believed that the local control of municipal franchises would insure that local issues remained separated from national issues.  Home rule also brought municipal concerns down to the lowest level of electorate so that voter had a more direct say in the operations of their utilities.  

Certainly not all the experts agreed with Wilcox.  Although Wilcox’s ideas held prominence for quite a while, by 1914 a majority of the National Municipal League supported provisions of a bill that called for state regulation of Municipal Utilities.  The experts argued that local control of utilities lead the utility companies to influence local politics. They also pointed out the ineptitude of many local leaders to negotiate decent franchises.  Local officials granted some franchises for as long as 999 years with no assurance of public safety.[28] Balthasar H. Meyer, a professor and transportation expert at University of Wisconsin, strongly believed in state regulation of public utilities.  Meyer deeply distrusted municipal government.  He believed that only corrupt politicians found the need for home rule of public franchises.  Furthermore, the advocates of state regulation believed that the control of state commissions removes politics from municipal utilities.  In their opinion, the state commissions enabled intelligent men to regulate public utilities based off scientific concepts of economics and new technology as well as moral judgment.[29] 

Under the advise of the experts, the move for state regulation of utilities became a nation wide phenomenon.   Most early attempts to regulate the public utility market started at the municipal level where cities exercised authority over utility companies that did business with in the municipality.  The general trend in the United States, however, was for regulatory power to move away from the municipal government and into the hands of the state governments.  State after state adopted statues to assure that state governments had the right to regulate their utilities.  By 1914 every state in the union except Delaware, Utah, and Wyoming had some sort of state commission for the regulation of public utilities.  State authorities often granted these commissions direct power over the public utilities.[30]

States often made up their different commissions similar manners. Governors, for example, had the power to appoint most of the commissioners. Twenty-seven of the forty-eight commissions in 1914 had commissioner that the governor, with the consent of the legislators, directly appointed.  Twenty of the commissions had commissioners that the people of the state directly elected. A railroad board appointed the remaining commissioners.  Each commission had anywhere from three to seven commissioners and the terms that the men were in office varied from two to ten years.  The pay of the commissioner ranged from $1,500 in South Dakota to $15,000 in New York.  States required few of the commissioners to have special qualifications, although many of the states had certain disqualification rules.  For instance, forty of the commissions disallowed, in one way or another, any of their commissioners to have a stake in, be employed by, or have any personal connection with the companies that they regulated.[31]  Legislators enacted these laws in order to help alleviate the threat of corruption.  One of the main reasons, after all, that the states ran the commission was so that utility regulation could avoid the corruption of the municipal governments.

California, under the national sweeping wave of progressive reform, did not leave its citizens without a commission of their own.  In 1911, under the rule of Governor Hiram Johnson the California legislator approved the Public Utilities Act.[32]  Although the act had mixed reviews with California’s  municipalities, many people, including the utility companies, celebrated its passage.  This act finally brought state regulation to the Golden State.  The 1911 act, however, was not the first step that California took in the direction of statewide regulation.  There was, in fact, a long history of movement toward regulation in California before the Public Utilities Act of 1911 ever made its way Sacramento.

One of California’s first steps into the field of statewide regulation took place with the creation of the first railroad commission.  Businessmen, for quite a while, complained about the unjust activities of the California railroad.  The railroad, they claimed, actively pitted Northern California markets against Southern California markets by reducing the rates for shipping goods one way as opposed to the other.  The Los Angeles Times claimed that the rates discriminated in the favor of San Francisco by making rates cheaper for shipping goods north from the San Joaquin Valley then they were to ship south.  The Times argued that there “is logically, and there should be cordially, a keen business rivalry between the two big cities of the State.  To make this competition the wholesome life of trade there should be absolute fairness between them.”[33]  The Times thought that shipping in either direction should have been equally priced.

Furthermore, shippers had to work in an environment in which railroads discriminated against certain companies.  The railroads often charged one shipper significantly more, or less than another company for transporting virtually identical material.  Even if the railroads did not charge different rates, they still practiced favoritism by offering rebates to only some shippers.  In 1909, Seth Mann, representing the San Francisco Merchants Exchange and the California Shippers Executive Committee argued his point before the Senate Committee on Corporations.  Mann claimed that it “is stability of rates that the shippers want.  Stability of rates is more important to the shippers that the rates them selves.” Mann went on to ask the Senate Committee, “If the railroads can, within the maximum change rates in an hour, how can the merchants know the rates that are to be charged his competitor?”[34]  Through his argument, Mann emphasized the point that every shipper needed to be charged the same rate in order to foster an environment of fair competition.  If the railroads retained the right to charge one shipper less than another then the railroad held the power to, single handedly, determine who could do business in California and who could not.   Aside from the business needs of shippers, the railroads also enjoyed monopolistic type powers that needed to be regulated for the protection of the public. 

Under these conditions, the California state legislator worked to bring regulation to the previously uncontrolled railroads.  In 1876 legislators determined that a three man board should be put together in order to impose direct regulation over the California railroad industry.  The Southern Pacific Railroad Company, however, successfully lobbied against the commission and stopped it from ever forming.  After the 1878-1879 depression, though, the Working Man’s party, along with California businessmen, pushed the need for direct state regulation of railroads into the California constitutional convention of 1879.[35]  After much deliberation legislators finally determined that they should, in fact, form their three man commission.  The lawmakers gave the commissioners the responsibility to fix maximum rates that carriers could charge, prohibit unjust discrimination, and stipulate a fixed system of accounts.[36]

Unfortunately, this first railroad commission proved utterly unsuccessful at accomplishing its goals. The commission was laden with problems from the very beginning.  For example, none of the three commissioners had the needed experience, or skills to effectively work with the railroads.  When the commission attempted to lower passenger rates, the railroads had little trouble willfully opposing the rate reduction.  The railroads argued that the higher rates were necessary in order to make up for the rugged terrain and the scarcity of coal.  Eventually one of the commissioners worked out a plan to reduce freight rates charged by the Southern Pacific Railroad, but only with the promises of not pushing for further rate reductions until another of the commissioner returned from Europe. Even after the commissioner returned from Europe, the Railroad Commission did not fight for further rate reductions.  Additionally, since the commissioners had no knowledge or experience with respects to the railroad industry, the commission had to rely on the experts supplied by the railroad companies in order to determine what the rates should be. [37]  Naturally, the experts worked for the benefit of the railroad companies.  The commission had proved to be an utter failure.

To make matters worse, investigators found that the commissioners acted inappropriately while serving on the commission. Two of the commissioners appeared to have excepted bribes from the railroads. One commissioner accumulated $20,000 that he could not account for, while another had gained approximately $100,000 from questionable business ventures. Additionally, the commissioners rarely attended to their duties.  One of the commissioners came to his office only two days a month in order to attend official meetings.[38]

The inability of the commission to accomplish any of its goals outraged many Californians. After one commission meeting the Los Angeles Times, for example, published an editorial in 1882 that showed much frustration with the commission. The Times argued that the “recent and last meeting of the Railroad Commissioners gave us additional proof of the utter worthlessness for good of that branch of our State government, and confirms many in the belief that the commission in power is a wicked farce and an outrage upon the tax-payers of the State.”  The Times further lamented against the commission by complaining that under the constitution there was no way for the people to disband the ineffective Railroad Commission.  The Times claimed that the “disgraceful enactment that created the board” should be “thrown into the sea.”[39]  Under such criticism both the Republican and Democratic parties promised reform.[40]

The reform took place in the guise of new commissioners, although the new commissioner did not have much more success then the old ones.  The commissioner enacted a maximum rate, for instance, but the railroad companies already charged less with the existing rate.  Moreover, the new commission still upheld contracts that allowed for rate discrimination.  Finally the commission obtained the help of Richard Morgan, a railroad expert, in order to help draft a new rate policy.  Morgan traveled throughout California collecting information and submitted his report to the commission on November 23, 1892.  To the commissioners’ dismay, the report concluded that the rates charged by the railroads were not excessive.  Although, Morgan argued, the rates charged in California were higher than the rates charged on the East Coast, the higher rates were, in fact, justifiable do to the layout of the land.  Morgan further argued that some of the rates charged were “ridiculously” low.  According to Morgan, the railroad industry shipped fruit at a loss in order to foster the industry in California.  The appearance of this report caused further outrage as shippers argued that it completely supported the arguments of the railroad companies.  In the wake of the scandal, legislator impeached the commissioners and found them to be unsure of them selves on the stand.  Once again the commission failed to do what it was supposed to do. Eventually Californians elected a new and better commission, although all the way up until the beginning of the 20^th century the Railroad Commission proved unsuccessful.[41] In order to enact a method of successful regulation, Californians fought for a complete overhaul of regulation as they knew it.

In order to fulfill the need for regulation, Californian legislators claimed that there needed to be changes to the then existing laws. James Gillett, the governor of California in 1907, claimed that California “has not kept pace with the majority of the sates of the Union in the enactment of laws regulating railroads and their business as common carriers.”[42]  Gillett further argued in 1909, that the act then used as the terms for railroad regulation needed to be repealed or amended in order to assure affective regulation.[43] 

The method for this fix came in the form of one of two bills offered at the time.  One bill offered by State Senator William Stetson offered overwhelming reform of the Railroad Commission.  Stetson’s bill called for an extended jurisdiction of the railroad commission to include oil pipelines and gas and electric companies and it gave the commission the right to set absolute rates for the railroad companies. Stetson’s bill also had a provision requiring the Rail to meet at least once every two weeks.  Furthermore, the Stetson bill granted the Railroad Commission authority to make physical evaluations of railroad companies’ holdings.  Lastly, Stetson wrote his bill to ensure that the Railroad Commission’s judgments would be final.  There would be no appeals to the judicial system once the commissioners made a decision.  The legislator, though, under the influence of the railroad companies felt that Stetson’s bill granted too much power and strength to the Railroad Commission.  They also felt that the bill would not hold up to the scrutiny of the courts as it granted more power than the constitution would have allowed.

The Legislators instead choose to ratify a bill sponsored by State Senator B. F. Wright.  Wright wrote his bill to be decidedly less powerful then Stetson’s bill.  Wright’s bill did not grant the commission absolute authority as did Stetson’s bill, but only allowed the commission to levy fines.  Wright’s bill also did not extend the authority of the commission to include gas and electric companies.  Lastly, the Railroad, according to Wrights bill, only had to meet once a month and could not levy absolute rates.  Instead legislators, under Wright’s plan, only granted the Railroad Commission to stipulate maximum rates.[44] 

The ratification of Wright’s unquestionably less powerful commission act moved the Railroad Commission act further into the realm of political debate.  Hiram Johnson, a political newcomer and progressive republican used the Railroad Commission issue to help him win the California Governorship in 1910.[45]  In his inaugural address made January 3, 1911, Johnson harshly criticized the railroad companies and the government that he had just taken over.  Johnson pointed out the fact that shippers, and others who had to deal with the Southern Pacific Company, cried out the need for protection against the rates charged by the company. Johnson claimed that the “demand has been answered by the corporation by the simple expedient of taking over the government of the State; and instead of regulation of the railroads, as the framers of the new Constitution fondly hoped, the railroad has regulated the State.”  Johnson believed that the government needed to retake control of its self and start to regulate the railroads as the original writers of the 1879 California constitution had intended.  Governor Johnson commended Stetson on his attempt to pass a strong bill and begged the legislators “not to permit the bogie man of the railroad companies, ‘Unconstitutionality,’ to deter” them from moving toward reform.[46]

Johnson got his wish. In 1911, two years after the passage of Wright’s act the California legislators took on the issue of the Railroad Commission once again. This time the legislators passed a bill remarkably similar to the bill that Stetson had proposed in 1909. In 1911, however, the legislator had more in its ranks that supported reform.  Furthermore, by this time the railroad companies did not even speak up against the act.  For them, the act eliminated the need to pay out the over 3.2 million dollars a year in rebates.  The time for reform had finally reached the doorstep of the Golden State.[47]

The new and improved Railroad commission not only worked to regulate railroad companies, but also worked to regulate public utilities as well.  On October 10, 1911, Californians amended their constitution in order to allow for statewide regulation of municipal utility franchises. The amended constitution opened up the door for a state commission to regulate any utility that the cities had not previously regulates.[48]  In order to implement public utility regulation, however, the legislators had to take further legislative action. John Eshleman, president of the reorganized railroad commission, along with several members of the state senate framed the Public Utilities Act. The Public Utilities act, which went into affect on March 21, 1912, gave the Railroad Commission broad powers over public utilities.  The Los Angeles Times described the Public Utilities Act as “the tangible expression of the principal that the State has the right and the power to regulate all corporations and persons engaged in the so-called public services.”[49] With this new act legislators and utility companies alike hoped that the utility franchise problems that had been plaguing California would fade into oblivion.   

As far back as 1909, the public utility companies themselves began to lobby Sacramento in order to bring about State regulation of public utilities.  The utility companies became wearisome of the individual municipalities that set stringent rules working against the business needs of the utility companies.  The president of the Pacific Coast Gas Association argued that “local men are not capable of fixing rates for public service corporations without prejudice.”[50] On this note utility corporations understandably wanted state commissions similar to the commissions that other states enjoyed.  One of the vice-presidents of PG & E argued that state commissions were “composed of specially qualified men of known integrity…. When such men under such conditions set a local rate it is influenced by neither sentiment nor partisanship, by neither galley nor graft.”[51] Apparently, in this case, the PG & E officer had not studied his recent history of the State Railroad Commission.  Nevertheless, thought, after meeting with the railroad commissioner the San Francisco Light and Power Company claimed, in support of the bill, that they were “glad to be regulated for [their] own sake.”[52]

Although the Public Utilities Act of 1911 enjoyed much backing, not every one whole heartedly supported the bill.  The Los Angeles Times argued that a State Utility Corporation would “toss local self-government into the scrap heap of politics.  It would give to five men, four of whom would come from north of the Tehachepi, complete control of all public utilities in Los Angeles, whether owned by private corporations or owned by the city.”  The Times further claimed that if legislatures put the “monstrous plan for the destruction of local government” into motion then Los Angeles would lose control of their precious Owens River Canal project.[53]  Los Angeles, after all had fought hard to retain the rights to the project that not only promised to supply ample water to the city, but also held the possibility of supplying ample electricity to the city as well.[54]

Furthermore, Los Angeles had already set up a board for their own regulation of utilities.  In 1909 the citizens of Los Angeles passed an ordinance that “created an appointive commission empowered to examine earnings and propose rates, investigate complaints, and provide recommendations on applications for franchises.”  The council had been generally successful at doing its job.[55]  If the Public Utilities act passed in the manner that the Times feared that it would, then the act spelled the end for Los Angeles’s own utilities boar. 

Although the original Public Utilities Act did provide a provision for cities such as Los Angeles to retain their own regulation, Los Angeles did not escape the overall State power over utilities. The 1911 act let cities remain in control of their own utilities, but in 1915 private utility provider lobbied to have all utilities, whether privately or publicly owned, placed under the power of California’s new Public Utilities Commission.[56]  The Time’s predictions of municipal loss of power had come to fruition and Los Angeles did loose power.  Even though this move may not have benefited Los Angeles, it did level the playing field and finally brought full statewide regulation to all of the utility markets in California.

The long movement started in 1879 from virtual utility chaos to uniform state regulation finally neared its end.  The original framers’ answer to the utility question involved allowing any company to supply utilities in a regulation free environment.  This solution, however, involved municipal corruption and expensive public battles over the control of utilities. Since the original framers of the 1879 constitution intended to remove public franchises from municipal control, it only took thirty-six years for the framers’ true intent to be realized.  The Railroad Commission had gained full control over the utilities market, in hopeful avoidance of municipal corruption, and pushed California full on in to the progressive era.  Although corruption is always a risk and no State institution is one-hundred percent without problems, State regulation brought needed change to California.  Today’s politicians and leaders, in light of California’s recent deregulation disaster, could find it wise to relearn the lessons of California’s past politicians. Statewide regulation in California is a needed part of governmental authority.

© All words and music written and owned by Shawn Nelsen.